March 2013

March 22, 2013 8:58AM

Hayek, Regulator?

Angus Burgin has written a valuable book The Great Persuasion, which accounts for an interesting, political science reading of the development of the Mont Pelerin Society and the progress of free market advocacy in the post WWII period. It is a thoughtful book, coming from a scholar who is definitely not a libertarian but at the same time understands and values the role of ideas in the political debate.

Professor Burgin has more recently published a rather shocking - at least to me - op-ed on His point is aptly summarized by a slightly esoteric title: “As Republican Hail Hayek, Their Plans Advance Friedman". Personally, I rejoice at seeing history of political thought to progress to the stage of political commentary. Plus, Hayek appears to be the good guy of the story: two cheers for Professor Burgin.

He aims to vindicate Hayek’s subtleties, from an inappropriate use of the Austrian economist as a rallying point. To this end, he goes back to one of the central points of his book. According to Burgin, within the Mont Pelerin Society and the classical liberal movement at large, we  havemoved from a Hayek-hegemony to a Friedman-hegemony. Whereas the first was more focused on first principles, the latter was more policy-oriented (see also this EconTalk with Russ Roberts). “The rise of Milton Friedman represents both the realization of Hayek’s dream of inspiring broad popular support for the benefits free markets have to offer, and the failure of his ambition to create a new social philosophy that would moderate the excesses of prior modes of market advocacy”. This is a controversial reading: for one thing, there are differences between Manchester and Chicago but also, quite frankly, the free market movement does not look like that much of a well ordered army, ready to follow his generals, at least to me.

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March 22, 2013 8:04AM

The Laffer Curve Bites Ireland in the Butt

Cigarette butt, to be specific.

All over the world, governments impose draconian taxes on tobacco, and then they are surprised when projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania,

Media Name: laffer_curve.jpg

and we’ve seen this Laffer Curve effect in Washington, DC, and Michigan.

Even the Government Accountability Office has found big Laffer Curve effects from tobacco taxation.

And now we’re seeing the same result in Ireland.

Here are some details from an Irish newspaper.

[N]ew Department of Finance figures showing that tobacco excise tax receipts are falling dramatically short of targets, even though taxes have increased and the number of people smoking has remained constant… [T]he latest upsurge in [cigarette] smuggling … is costing the state hundreds of millions in lost revenue. Criminal gangs are openly selling smuggled cigarettes on the streets of central Dublin and other cities, door to door and at fairs and markets. Counterfeit cigarettes can be brought to the Irish market at a cost of just 20 cents a pack and sold on the black market at €4.50. The average selling price of legitimate cigarettes is €9.20 a pack. …Ireland has the most expensive cigarettes in the European Union, meaning that smugglers can make big profits by offering them at cheaper prices.

I had to laugh at the part of the article that says, “receipts are falling dramatically short of targets, even though taxes have increased.”

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March 21, 2013 9:39PM

Immigrant Welfare Use – A Response to “The Cost of Cheap Labor”

Earlier this month Steven Camarota of the Center for Immigration Studies (CIS) critiqued our Cato Working Paper exploring immigrant welfare use. Our report found that low‐​income non‐​citizen immigrants use public benefits like Medicaid, foodstamps, and cash aid less than their poor native‐​born citizen counterparts. Furthermore, when immigrants do receive these benefits the amount is less than the amount comparative natives receive. 

Dr. Camarota argues that immigrant‐​headed households (a once useful term that is now ambiguous) use more benefits than native‐​headed households, but does not dispute that, when immigrants receive public assistance benefits, the average amount received tends to be less. All U.S. citizens have access to Medicaid, SNAP, and other benefits. In contrast, recent legal immigrants who are not yet citizens are often ineligible from the major benefit programs and undocumented immigrants are never eligible. 

The first issue – which is rather wonky – is how to measure immigrant welfare use. Our approach is to count the benefits used by immigrants individually while Camarota’s approach is to include everyone in a so‐​called immigrant‐​headed household regardless of citizenship status – especially U.S.-born children and spouses. 

Our approach of counting immigrant welfare use individually is used by the conservative state of Texas to measure immigrant use of government education and other benefits. The Texas Comptroller’s Office did not include the children of immigrants who were American citizens when calculating the cost to public services in Texas because, “the inclusion of these children dramatically increased the costs.” The Texas report continued by stating:

“The Comptroller has chosen not to estimate these costs or revenues [of U.S.-born children] due to uncertainties concerning the estimated population and the question of whether to include the costs and revenues associated only with the first generation or so include subsequent generations, all of which could be seen as costs (emphasis added).”

In other words, counting the cost of the children of immigrants who are born citizens is a bad approach. If we were to follow Camarota’s methodology, why not count the welfare costs of the great‐​grandchildren of immigrants who use welfare or public schools today? Our study, on the other hand, measures the welfare cost of non‐​naturalized immigrants and, where possible, naturalized Americans.

We focus on comparing poor immigrants to poor natives because it produces an apples‐​to‐​apples comparison. In that way we exclude non‐​welfare using immigrants like Sergey Brin, the co‐​founder of Google, and other wealthy Americans. For instance, the annual cost of Medicaid amongst 100 non‐​citizen poor adult immigrants was 42 percent below the cost for 100 native born poor adults. For non‐​citizen children compared to citizen children, immigrants cost 66 percent less. 

Immigrants’ use of public benefits is important and worth exploring from every possible angle as the immigration reform debate develops. Individually, poor immigrants are less likely to receive welfare benefits and when they do the value is less than for poor natives. 

This post was co‐​written by Leighton Ku, PhD, MPH, Professor of Health Policy and Director of the Center for Health Policy Research at George Washington University, Brian Bruen, MS, Lead Research Scientist and Lecturer in the Department of Health Policy at George Washington University, and Alex Nowrasteh of the Cato InstituteBoth Professor Ku and Mr. Bruen have conducted research and policy analyses about the use of medical and other public benefits for needy Americans, including immigrants, for many years. Research articles by Ku and/​or Bruen have been published in Health Affairs, New England Journal of Medicine, and American Journal of Public Health

March 21, 2013 9:33PM

Supreme Court Should Clarify the Meaning of “One‐​Person, One‐​Vote”

As I wrote in January, the Supreme Court is currently considering — and will likely decide next week — whether to review a case, Lepak v. City of Irving, involving the constitutional principle of one‐​person, one‐​vote (OPOV). The specific issue is whether redistricting processes trying to comply with OPOV should equalize the total population in each electoral district or the number of citizens of voting age. If the former, then a relatively small number of eligible voters in a heavily immigrant district can have their votes “over‐​weighted” compared to voters in other districts that are similarly populated but have far more eligible voters — as happened in Irving, Texas. Cato filed a brief supporting the challengers that highlighted the untenable conflict between OPOV and modern applications of Section 2 of the Voting Rights Act.

Over the last few days, several commentators have discussed this case and its implications -– including most recently Adam Liptak in the New York Times. Most have presented the question facing the Court in Lepak as a choice between two competing theories of democracy: electoral equality (ensuring the equal weighting of voters’ votes) and representational equality (ensuring residents have equal access to representation). For example, Liptak quotes University of Texas law professor Joseph Fishkin as describing the “enormous practical consequences” of a Court ruling that mandates electoral equality, which include “shift[ing] power markedly at every level, away from cities and neighborhoods with many immigrants and children and toward the older, white, more exclusive native‐​born areas.” But this framing of the issue as a mutually exclusive “choice” rests on two crucial assumption, both of which are deeply flawed. 

First, most basically, it’s a false choice. Electoral and representational equality aren’t mututally exclusive. States and cities can –and almost always do, albeit unconsciously — create districts that meet both criteria. That’s because equalizing population between districts will almost always equalize voting power too. But even in the exceptional case where there are geographic concentrations of disproportionately non‐​citizen populations in a particular political subdivision, districts meeting both criteria can still easily be formed. Legislators routinely draw districts that satisfy multiple goals — for instance, equal numbers of total population and certain partisan majorities. If a state or city pursued both electoral and representational equality as apportionment goals, Fishkin’s parade of horribles would easily be avoided.

Second, Fishkin’s framing incorrectly assumes that OPOV can be met either by equalizing voting power or by equalizing representational access. But OPOV isn’t some kind of constitutional either/​or. Indeed, as the name itself suggests, the constitutional requirement is one‐​person, one‐​vote, not one‐​person, one‐​equal‐​share‐​of‐​access‐​to‐​representation. The Supreme Court has made clear that the person being protected by the doctrine is the voter and the thing being protected is the weight of that voter’s vote. Thus the Court “simply stated” the OPOV doctrine as follows in the 1964 case of Reynolds v. Sims: “An individual’s right to vote for state legislators is unconstitutionally impaired when its weight is in a substantial fashion diluted when compared with votes of citizens living on other parts of the State.” In other words, the right of a voter to an equally weighted vote stands on its own constitutional grounds. This right doesn’t somehow evaporate when a city or state creates electoral districts containing equal populations.

This same flaw infects the reasoning in the three circuit court cases that have previously addressed this issue (whose divergent reasoning itself begs Supreme Court instruction). As the lawyers representing the Lepak plaintiffs — one of whom I should mention is a former co‐​clerk of mine — put in a recent article in the Texas Review of Law and Politics:

Each [of the lower‐​court decisions] treats representational equality and electoral equality as morally and constitutionally equivalent. But this is putting the cart before the horse. Even assuming there is a constitutional right to equal representation, in the hierarchy of constitutional rights, electoral equality clearly reigns supreme. The Supreme Court has noted the right to vote is “preservative of all other rights,” and it is. Before there can be any meaningful representation, the right to vote must be protected and secured. In any “clash” between the right of a voter to an equally weighted vote and the right of a nonvoter to equal representation, the right of the voter trumps. 

By ignoring this reality and imposing literally no limits on how severely a city or state could dilute the weight of its voters’ votes, Garza, Daly, and Chen set a dangerous precedent. In those cases, vote dilution was as high as fifty percent. That result is pernicious enough. But it is just the tip of the iceberg. Under the holdings of these cases, so long as the total populations between the districts are equalized, a city could arbitrarily “choose” to make one voter’s vote worth two times, ten times, or even ten thousand times as much as another voter’s vote. Under these cases, any of these “political choices” would be acceptable. Yet how could any of these results be squared with the Supreme Court’s categorical holding that a voter has “a constitutional right to vote in elections without having his vote wrongfully denied, debased, or diluted”?

It’s a good question, and one the Supreme Court will hopefully soon answer.

March 21, 2013 5:31PM

How Virginia Businesses Are Struggling under Obama’s Illegal Employer Tax

An article in today’s Washington Post highlights the costs ObamaCare imposes on small businesses, and the dampening effect of the law on jobs and economic growth.

What the article does not reveal is that because the three businesses it examines are located in in Virginia, which has opted not to establish a health insurance “exchange,” Congress exempted these firms ObamaCare’s employer mandate. Yet the IRS is trying to impose that tax on firms in Virginia and 33 other states, even though Congress expressly forbids the agency from doing so. (Jonathan Adler and I explain here.)

An excerpt from the Post article.

Jody Manor has run a small cafe and catering company for nearly three decades in Old Town Alexandria, only a few blocks from where he was born. Six years ago he purchased an adjoining building, and more recently he started searching for a second location.

Whether he moves forward with expansion depends on the price tag of the requirements mandated by the Affordable Care Act, President Obama’s signature health‐​care initiative.

Manor’s company employs 45 people. If he brings in just five more, his business would soon be subject to new minimum coverage standards under the 2010 law — and he does not know whether his current health plan would meet this threshold of coverage or how his premiums might be affected.

“These changes are less than a year away, and I still have no information about how much our premiums are going to cost,” said Manor, owner of Bittersweet Catering, Cafe and Bakery. “It definitely gives me pause when thinking about adding another location.”

Nearly three years after the health‐​care law was passed…the picture remains anything but clear for small‐​business owners, some of whom have been warned that their premiums may spike and that their current coverage may fall short.

“There is tremendous confusion and fear among many of my competitors and other business owners in my network, particularly about what you have to cover and how you have to report,” said Hugh Joyce, owner of James River Air Conditioning in Richmond. “In speaking to them, I am convinced that the primary reason we aren’t seeing a robust economic recovery is the uncertainty and costs associated with this health‐​care law.”…

The situation only gets thornier for Joyce, who also owns a small art gallery with one full‐​time employee. Rules proposed this year by the Internal Revenue Service suggest that workers from separate firms owned by the same person will be totaled to determine an employer’s ultimate size. If so, Joyce will probably shift his gallery employee to part‐​time hours to avoid having to add coverage at his second business…

Meanwhile, many employers have seen their premiums rise or plans disappear as insurers prepare for the coming changes.

One in eight small‐​business owners who responded to a survey by the National Federation of Independent Business said their health insurance providers had notified them that their plans would be terminated. A study released last week by Adecco, a human resources consulting firm, showed that nearly a third of employers said they stopped hiring or cut their workforce because of the law…

“If our cost trajectory continues, in five to seven years the premiums will eat up all my net profit,” Joyce said. “It’s already hard out there right now, particularly for small and medium‐​size businesses. This may be the straw that breaks the camel’s back.”

I could “excerpt” the whole thing. Better that you just go there and read it.

March 21, 2013 5:26PM

Fresh Wonky Goodness

Two new projects of interest for public policy junkies have recently come to my attention–and both happen to be the creations of former Catoites. 

Marie Gryphon Newhouse, formerly a Cato education‐​policy scholar and now with Harvard’s Safra Center for Ethics, has started “a blog about think tank ethics and governance,” dubbed “the High Horse.” It’s part of her ongoing book project on that subject. Recent posts include an interview with Heritage’s Ed Meese and Marie’s take on a recent pay‐​for‐​play imbroglio involving Malaysia. 

Former Catoite Jerry Brito, now a senior research fellow at Mercatus, has (with Peter E. Snyder) put together Wonkmeme, a site that “aggregates and tracks over a hundred blogs covering law, economics, and public policy. It detects which blog posts are driving the day’s conversation and presents the resulting data in useful ways.” It also “also determines which books are the most widely discussed,” and hey look: Cult of the Presidency is currently #4 (click quick before it plummets!).

March 21, 2013 5:05PM

Reining In the Modern Executive State

The Supreme Court issued a ruling yesterday on a consolidated pair of cases that looked initially like a win for property rights. (Decker v. Northwest Environmental Defense Center and Georgia-Pacific West, Inc. v. Northwest Environmental Defense Center.) Interpreting Environmental Protection Agency authority, the Court held 7-1, with Justice Kennedy writing for the Court, Justice Scalia concurring in part and dissenting in part, and Justice Breyer recusing himself, that logging companies and Oregon forestry officials did not have to obtain EPA permits for storm-water runoff from logging roads, contrary to what the NEDC had argued and the Ninth Circuit below had held.

As so often happens, however, the underlying issues were far more complicated and important, involving basic administrative law questions and fundamental separation-of-powers principles. In particular, the question Scalia pressed was this: Should a court give deference—known as Auer deference—to an administrative agency’s interpretation of its own regulations? Bad enough that courts give excessive Chevron deference, as it’s known, to agencies' interpretations of congressional statutes when agencies write and enforce regulations pursuant to the statutes. When agencies, in addition, get not only to write but to interpret their own regulations, it’s a prescription for mischief, as Scalia made clear.

As a general matter, we at Cato have long argued that Congress delegates far too much of its legislative authority to executive branch agencies. After all, the very first sentence of Article I of the Constitution reads: “All legislative Powers herein granted shall be vested in a Congress ….” (emphasis added) As a practical matter, Congress has always had to delegate some rule-making authority to the executive branch. With the vast expansion of Congress’s legislative powers during the New Deal, however, that delegation has grown exponentially, along with the hundreds of agencies Congress has since created. Today, most of the law we live under, except at the broadest level, is written not by Congress but by those agencies. Do we need any better example than Obamacare? Over 2,000 pages long, that Act pales in comparison to the volumes of regulations now being written in the agencies to give it effect. All of which raises the question, what’s the role of the courts in all of this?

The substantive question here was whether stormwater runoff from two logging roads violated regulations the EPA had written pursuant to the Clean Water Act. Thus, although the environmental plaintiffs lost, that does not mean, as might be thought, that the decision was a win for proponents of property rights. This was a question of whether logging enterprises were using their property in a way that protected the public’s property interests in clean water. That’s what the regulations were written to ensure. The Court had before it, therefore, a question of regulatory interpretation and application in light of the facts. Without going into the complex statutory and regulatory parsing that both the Court and Scalia engaged in—see the decision to work your way through that—suffice it to say, again, that Kennedy simply deferred to EPA’s interpretation of its own regulation: Auer deference, which accepts an agency’s reading of its own regulation unless it is “plainly erroneous or inconsistent with the regulation.” By contrast, carefully invoking several interpretive canons, Scalia argued that in so deferring the Court had upheld EPA’s unnatural reading of its regulation. He would have found for the NEDC. (So much for Scalia the result-oriented conservative.)

Although I believe Scalia had indeed the “more natural” reading of the regulation, the larger, constitutional issue is the more interesting one, namely, whether such deference as the Court had given is consistent with the separation of powers, and on this, Scalia is at his best. Addressing the contention that the agency possesses special expertise in administering its complex and highly technical regulatory program, he answers:

That is true enough, and it leads to the conclusion that agencies and not courts should make regulations. But it has nothing to do with who should interpret regulations…. Making regulatory programs effective is the purpose of rulemaking, in which the agency uses its “special expertise” to formulate the best rule. But the purpose of interpretation is to determine the fair meaning of the rule—to “say what the law is,” Marbury v. Madison. Not to make policy, but to determine what the law is.

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